What is accrual accounting?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Accrual accounting records income when it is earned and expenses when they are incurred, rather than when money changes hands. Invoice and payment dates can fall in a different period. Because income and expenses can be recorded before they are paid, the books also show money owed to and by the business.
Because it puts income and expenses in the period they belong to, accrual accounting gives a truer picture of profit for a month or a year. It is also what accounts payable and accounts receivable rely on.
It takes more work than cash accounting, because every unpaid invoice and bill has to be tracked until it is settled.
In Australia
business.gov.au's guide to cash and accrual accounting says accrual accounting suits businesses that don't get paid straight away, such as architects who provide a service and invoice for it later, and that it shows your true financial position by including money owed to you and money you owe.
It also notes that accrual accounting is more complicated than cash accounting, so you need a good understanding of bookkeeping methods or a professional to help.
Worked example
| What happened | Accrual accounting | Cash accounting |
|---|---|---|
| Work completed and invoiced on 28 June, paid on 5 July | June | July |
| Goods received and billed by the supplier on 20 June, paid on 10 July | June | July |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Recording a customer's payment as new income when the invoice was already recorded, which counts the sale twice.
Related terms
Sources
- Choose between cash and accrual accounting
business.gov.au, Australian Government. Current at 15 October 2026, released 13 September 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.